Why Extending R&D Credit Should Matter to Small Businesses

Lack of Education is an Issue
In an article he wrote for Forbes last year, Zerbe noted that only one out of 20 eligible small businesses in the United States took advantage of the R&D credit. He told AccountingWEB the reason why so many don’t is because of a lack of education.

“Thousands of small and medium companies that are eligible for the R&D tax credit don’t take it because they aren’t aware they qualify,” he said. “The R&D credit is available for a huge range of industries, including manufacturing, software, engineering, architecture, chemistry, biology, agriculture, and food processing. The R&D credit isn’t just about lab costs and test tubes; it’s about applied science – what you are doing on the factory floor or modeling on the computer to make not only a new product, but also to make an existing product better, quicker, cheaper, or greener.”

If a small or midsized business engages in activities that meet the test's four criteria, "that business is likely engaging in qualified research and should consult their tax practitioner to determine if the business is eligible to claim a research credit," Paul noted.

Zerbe emphasized another possibility for small business owners: investigating whether their state offers a research tax break.

“Nearly 40 states now have a permanent R&D tax credit,” he said. “Often, a company can wipe out its state tax bill by utilizing its state’s R&D tax credit.”

If any or all of these R&D credit provisions are included in a final tax extenders package passed by Congress later this year, Zerbe said small business owners “should be dancing in the streets.”

“If the House and Senate will agree to the improvements to make the R&D tax credit more available for small and medium businesses, that will make a big difference in making our manufacturing more competitive internationally and encouraging R&D work in this country,” he concluded.

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